Party of 10? You may not get service with a smile

By Kate Gibson

Updated on: February 15, 2016 / 2:25 PM
/ MoneyWatch

Jake Watts, a server at an Outback Steakhouse in Commerce, Georgia, for the past six years, says it often doesn't pay to wait on a large table. In fact, there are times when he and his fellow servers lose money because they still have to pay a percentage of the tab to their fellow workers, regardless of whether they get tipped.

"We have to give a percentage to our host and bartender, or 3 percent of our sales, and if someone doesn't leave a tip, we have to pay out of pocket," said Watts, an Athens resident who works at Outback while attending the University of North Georgia, where he expects to earn an associate's degree next semester.

Elizabeth Watts, a spokeswoman for Bloomin' Brands (BLMN), which operates 1,400 restaurants including the Outback Steakhouse brand in 49 states and 21 countries, declined comment, saying the company is in "a quiet period."

"It's still that safety net that we don't have any more," said Watts of auto-gratuity, which up until two years ago gave servers at Outback the option of adding an 18 percent service charge to parties of eight or more. Now, Watts says he and his colleagues actively avoid the money-losing proposition. "But on certain holidays -- Mother's Day and Father's Day -- it's unavoidable."

Restaurateur bans tips across New York City eateries

Among the roughly 1 million Americans employed by large casual-dining chains, Watts is among the thousands who have signed or started petitions on the workplace organizing site Coworker.org calling for a return to auto-gratuity at TGI Friday's, Outback, BJ's Restaurants and Olive Garden. All those restaurants rescinded that option for servers in the beginning of 2014.

"A lot of companies got afraid of owning up to the amount of money they were actually making," said Mark Bryan, who has worked as a server at BJ's Brewhouse in Palm Beach County, Florida, for six years. "They get a tax break, but don't allow the people who work for them to get a decent living."

BJ's Restaurants (BJRI), which owns and operates 172 casual dining restaurants under a variety of brand names, did not return calls and emails requesting comment.

While it's common practice for restaurants to add a gratuity, or service fee, to large parties, an IRS rule that counts the charges as wages prompted national restaurant chains to drop them in an effort to avoid being subject to payroll taxes and having to include the charge in overtime calculations.

Attorney Carolyn Richmond, who specializes in employment and hospitality law, said the IRS didn't change its rules, but rather notified businesses that it would be enforcing them, while first giving restaurants time to come into compliance. Instead, a number of casual-dining chains opted out.

"It's not a gratuity if it's not left up to the customer's discretion," said Richmond, a partner at law firm Fox Rothschild, who added that the IRS views mandatory charges as part of the restaurant's revenue and taxes them accordingly. "If I pay my employees money out of the company coffers, I lose the FICA (Federal Insurance Contributions Act) tip credit, and it raises the overtime rates I have to pay my employees."

Why more restaurants are putting an end to tipping

Rich Jeffers, a spokesman for Darden Restaurants (DRI), which owns and operates 1,500 restaurants under the Olive Garden and other brand names, said when workers were told auto-gratuities would be treated as wages that would not be paid for a week or more, they rejected the notion. "What we heard from our employees is, 'I don't want to wait for my paycheck. I want my tips at the end of my shift.'"

Jordan Romanus, an organizer with the Restaurant Opportunities Center (ROC), a worker advocacy group that has helped with the petition campaigns, said he doesn't buy Darden's contention that its policy change came with the approval of its workers. "We did our own survey of 500 Darden workers across the country, and 97 percent said they wanted it back."

Managers at Darden Restaurants make sure large parties understand that compensation for their servers is not included in the tab, which come with suggested tip amounts, said Jeffers. "From what we've seen, there has not been a tip decline."

If so, that would upend the findings by researchers at Cornell University's School of Hotel Administration. Citing the tendency for tip percentages to fall as the size of the tab increases, Michael Lynn, a professor at the school, has proposed automatic service charges to tables of six or more to compensate servers who would otherwise fare better by waiting on multiple smaller parties.

"It's a big decline," said Heather Freeman, who worked at a TGI Fridays in Pittsburgh for nearly nine years. Freeman, who recently quit restaurant work for employment as a nurse, said she had been making about $1,000 every two weeks with auto-gratuity, a figure that declined to between $600 and $800 in the last few years.

"Fridays is centered around our people and the great experiences they deliver to our guests," a spokesperson for TGI Fridays said in an email. "We offer our people competitive pay, and we're continuously looking at our pay structure and what is going on in the industry so we can make any adjustments as needed." The company declined to elaborate further.

While no longer working at TGI Friday's, Freeman is active in advocating an increase in the tipped minimum wage, which in Pennsylvania is $2.83 an hour, above the federal level of $2.13. ROC advocates paying restaurant workers the same minimum hourly wage that other workers get, and letting them keep their tips.

"The food service is a very sleepy industry with respect to oversight," Richmond said. "The spotlight hasn't been shined on the restaurant industry until the last 10 years or so, as we shifted from more of a manufacturing to a service industry economy with more minimum wage workers."